Haworth & Lexon Law Newsletter

No.5, 2007 (Total:No.67) May. 20th, 2007Edited by Haworth & Lexon

“Haworth & Lexon Law Newsletter” is issued every month, mainly introducing the legal change in the fields of Corporate, Securities, Foreign investment, Intellectual property rights, International trade etc. with necessary comment. All the comments do not mean the legal opinion of our firm and the firm does not have any legal liability for such comment. Should you have any interest in any topics or any questions please feel free to contact the firm. You will be expected to have satisfactory response from the professional attorney of our firm.

Guidelines

News of Haworth & Lexon

Haworth & Lexon is Providing Legal Service for the Construction of One of the Most Important Pavilions of Shanghai World Expo 2010…………………………………..………2

Latest Laws and Regulations

Interpretations on the New Regulations relevant to Commercial Franchise………………......2

“Measures on Administration of Registration of Partnership Enterprises”……………………6

“Standards on Qualifications for Engineering Design”…………………………………..….....8

Notice of Ministry of Commerce on Printing and Distributing the “Regulations on Use of the Logo of “China Time-honored Brands””………………………………………………...…....9

“Measures on Administration of Deducting the Remunerations paid to Interns before Tax”…………………………………………………………………………………………..10

“Measures for Administration of the State Accredited Enterprise Technology Centers”.…………………………………………………………………………………...…10

“Reply of the State Administration of Taxation concerning Dealing with Income Taxes Imposed on Government Subsides to Foreign Invested Enterprises and Foreign Enterprises ”……………....................................................................................................….11

IP Cases

The Judgment of the First Instance Affirmed that Infringement is Constituted for SOHU to Publish Introduction of Restaurants from “Dazhong Dianping Website”………...12

Infringement is Constituted to Use as its Trade Name the Words Similar to A Registered Trademark of others……………………………………………………………………….....14

It shall be deemed as Implied Consent that A Right Holder of A Trademark did not object to the Use of its Trademark by the Company He worked for……………………………….…15

Registration Information of the Seller shall at least be Provided to Prove the Lawful Sources of Infringing Products............................................................................16

Application for Trademarks shall not Harm the Previous Rights of Others………………………………………………………………………………………..17

§ News of Haworth & Lexon

Haworth & Lexon is Providing Legal Service for the Construction of One of the Most Important Pavilions of Shanghai World Expo 2010

Haworth & Lexon will provide Legal Service for the construction of one of the most important pavilions, namely the Performing Arts Center, of Shanghai World Expo 2010. Haworth & Lexon, engaged to be the legal advisor for the project, will provide legal service in the whole process of construction.

According to the scheme, the Performing Arts Center of Shanghai World Expo 2010 will be a world first-class performing arts center in the Park of World Expo 2010. The Center will be a multi-functional pavilion for all kinds of performance, celebrations and gathering, art communications, academic study, leisure and entertainment, and traveling during the period of Shanghai World Expo 2010. The Center is seated at the core zone which is between two bridges, and at the south bank of Pujiang River. It faces to the Exhibition Pavilion in the south beyond a river, and stands to the Public Center in the west. The whole Center has a plot area of nearly 80,000 square meters, the over-ground building area is 45,000 square meters and the underground building area is about 20,000 square meters. The Metro Line 8 and the Xizang Road(s) River-crossing Tunnel will be connected at the underground of the Center. The Center, after the World Expo 2010, will be an international entertainment and communication center in Shanghai, a pavilion for communication of Sino-foreign fashion and culture, and a comprehensive performing pavilion radiating its effect to the eastern Asia.

To regulate the commercial franchising activities, direct the development of? commercial franchises to be healthy and orderly, and protect the market orders, the State Council promulgated the “Measures on Administration of Commercial Franchises” (hereinafter referred to as the “Measures”) on February 6, 2007, which came into force on May 1, 2007. In addition, the Ministry of Commerce promulgated the “Measures on Administration of Archival Filing of Commercial Franchises” and the “Measures on Administration of Information Disclosure of Commercial Franchises” on April 30, 2007, which have been implemented at the same time as the Measures.

The Measures Re-defines the Qualifications of Franchisors

The Measures defines the franchisors as those enterprises who own such business sources as registered trademarks, enterprise logos, patents and proprietary technology, which had been defined, by the Ministry of Commerce and even the former Department of Trading, as enterprises and other economic organizations which have such business sources as trademarks, trade names and business modes to be granted to others. The changes, despite tiny, reflect the further regulation on franchises by the government.

Firstly, the franchisors shall be enterprises, excluding other economic organizations. Any entities other than enterprises or individuals are still more not allowed to carry on franchising activities. It is a necessary measure for the chaotic franchising market.

Secondly, the trademarks which can be licensed to franchisees shall be registered trademarks. According to the Trademark Law, the trademarks, whether registered or not, are protected under the laws, though there is difference in the vigor and extents of protection. It seems that the Ministry of Commerce has restrictions in recognizing trademarks, since it only provides “own trademarks to be licensed to others” at large, which causes chaos in practice. In the cases relevant to franchising disputes which we provided legal service to, all of them involve the situation that the franchisors granted licenses of non-registered trademarks or the trademarks which were in application to others, and when there was infringement on trademarks, the franchisors were unable to prevent infringement on trademarks. Then the interests of the franchisees could not be realized. What’s more, franchising activities with non-registered trademarks also, to some extent, encourage commercial frauds.

Thirdly, the logos, patents and proprietary technology of enterprises are included in the business sources to be licensed to others for the first time, which enlarges the application scope of franchises and will improve the development of franchises.

The Measures Make Clear the Requirements to be Met in Carrying on Franchising Activities

In addition to the condition that only the enterprises will be allowed to carry on franchising activities referred to above, the franchisors shall also have mature business modes, and are able to provide business guidance, technology support and training. The enterprises which copy the manuals, websites and enlisting documents of others, and have no service abilities for providing business guidance, technology support and training shall be excluded. What needs pointing out is that even these enterprises that are allowed to carry on business may face with the suits claiming them for unfair competition and infringements on intellectual properties. In addition, the Measures clearly request that the franchisors shall operate at least two directly operated shops, and the period of operation shall be more than 1 year, which aims to prevent frauds by the way of franchising.

The Measures Intensify the Information Disclosure Requirements and Regulation on Franchisors

Information disclosure system is the core system of franchising. The previous measures on administration of franchises also provide on information disclosure system, but it had not been implemented effectively. The Measures provides that the franchisors shall establish and implement a perfect information disclosure system, and provide the relevant information and franchising contracts in written form, at least thirty days before execution of franchising contracts. It also sets out the specific provisions on the information which shall be provided by franchisors, including the basic conditions and commercial reputation records of the franchisors and their legal representatives, business sources owned by franchisors, abilities of franchisors to provide service to franchisees and management and supervision on business of franchisees, franchisee fees and the payments, and budgets for investment in franchising shops. The Measures on Administration of Information Disclosure of Commercial Franchises make detailed requirements on the above aspects. To the franchisors that violate these provisions, the authorities in charge of commerce will order them to rectify, charge penalties and make public statements.

In recent years, franchises have been incorrectly described as an area which will generate incomes easily. Attractive advertisement for inviting investments is in an overwhelming manner, while there are many cases infringing the rights and interests of franchisees. The Measures make specific requests on the activities of franchisors, in response to the characteristics of franchises and the main issues in practice, including (1) the operation manuals which shall be provided by franchisors to franchisees and such services as business guidance, technology support and training; (2) if the franchisors request the franchisees to make payments before the execution of franchising contracts, they shall explain, in writing, for the use of such fees, and the conditions and ways of refund; (3) the franchisors shall use the promotion fees charged on franchisees in the way agreed by parties, and disclose the way of use to franchisees in time; (4) there must not exist any fraud or misleading activities in promotion, and there shall be no description on profit in the advertisement published by them; and so on.

The Measures Bring in the Archival Filing and Public Announcement Systems

To protect the franchisees’ lawful rights and interests, considering the asymmetric information between franchisors and franchisees, in addition to intensifying information disclosure requirements and regulating the activities of franchisors, the Measures also bring in the archival filing and public announcement systems. The Measures provides that the franchisors shall make a filing with the commerce administrative department within 15 days after the execution of franchising contracts for the first time. Anyone who intends to engage in any commercial franchise activities within a province, autonomous region, or municipality directly under the Central Government shall go through the archival filing formalities in the commerce administrative department of the people’s government of the province, autonomous region, or municipality directly under the Central Government where the franchisors are located. Anyone who intends to engage in any commercial franchise activities beyond a province, autonomous region, or municipality directly under the Central Government shall go through archival filing formalities in the commerce administrative department of the State Council. Any franchisor having been engaging in franchise activities before May 1, 2007 shall apply for archival filing at the commercial administrative department.

The Ministry of Commerce has established the national network for archival filing work relating to commercial franchise. Any franchisor shall go through the archival formalities through the government website. The general public may obtain the following information through the government website of the Ministry of Commerce: (1)The registered trademark(s), enterprise mark(s), patent(s), know-how and other business resources of the franchisor; (2)The franchisor’s archival filing date; (3)The location of the legal business place, contact information and name of the legal representative of the franchisor; and (4)The location of the business place of the franchisee(s) within China.

The authorities in charge of filing will cancel the archival filing if there is any following activities of franchisors, and make public announcement on the government website: (1) the business licenses of the franchisors have been withdrawn by the registration administrative authorities for illegal business; (2) the authorities in charge of filing receive judicial suggestion letter on cancellation of archival filing from the judiciary for illegal business by franchisors; (3) the franchisors conceal the relevant information or provide false information, which has been proved; (4) the franchisors carry on cancellation by themselves. In addition, the illegal activities of the franchisors will be announced to the public.

?“Measures on Administration of Registration of Partnership Enterprises”

After the revision on the Partnership Enterprises Law made by the Standing Committee of the National People’s Congress in August, 2006, the State Council decided to revise the “Measures on Administration of Registration of Partnership Enterprises” (hereinafter referred to as the “Measures”) on May 9, 2007, which will come into force on June 1, 2007.

Part One the Measures set out regulations on “Limited Liability Partnership Enterprises”

According to the Partnership Enterprise Law, a limited liability partnership enterprise shall be composed of general partners and limited partners. The general partners shall jointly and severally be responsible for the liabilities of the partnership enterprises, and the limited partners shall only be responsible for the liabilities of the partnership enterprises, limited by their registered contributions. Therefore, the newly revised Measures set out new provisions on the establishment of the limited liability partnership:

1. There shall be such words as “general partnership”, “special general partnership” or “limited partnership” marked following the organization form, which means that the newly set up partnership enterprises may be recognized as limited partnership enterprises or not from the enterprise names.

2. A “partner executing partnership affairs” is a legal registration matter. Moreover, a limited partner must not be such partner executing partner affairs.

3. According to Article 4 of the Measures, the national industry and commerce administrative departments may have specific provisions on registration of limited liability partnership enterprises.

Part Two A Partner Executing Partnership Affairs is one of the Matters legally Required to be Registered

The stipulations before revision provide that if there is any partner executing partnership affairs, the registration matters shall also include such person. However, the new Measures clarify that the partner executing partnership affairs shall be the registration matter. Moreover, if the partnership agreement does not provide, or the partners do not decide to authorize a partner executing partnership affairs, all of the partners will be the partners executing partnership affairs.

In addition, the partner executing partnership affairs may be a legal person or other entity, but the representatives of such legal person or entity shall be registered.

According to the Partnership Enterprise Law, the partners executing partnership affairs, shall represent the partnership to any third party.

Part Three the Assets of a Partnership Enterprise may not be Assessed but only by Agreement by All of the Partners.

Article 14 of the Measures provides if a partner makes capital contributions in kind, intellectual property right, land use right or other properties, the price may be determined by all partners through negotiation or may assessed by the a statutory assessment institution entrusted by all partners.

Part Four Registration of Partnership Enterprises shall comply with the Principle of Promptness

Article 16 to Article 20 of the Measures provide that if the documents submitted by a partnership enterprise applicant are complete and comply with the legal requirements, which are enough for the registration authorities to make registration or change registration, they shall deal with them immediately. If the above requirements are not met, the authorities shall make a decision on whether to make registration or not within 20 days after accepting the documents.

The newly revised Partnership Enterprise Law will come into effect on June 1, 2007. The promulgation of the Measures makes the establishment of the partnership enterprises (especially the limited liability partnership enterprises) have the legal basis.

Standards on Qualifications for Engineering Design

The Department of Construction formulated “Standards on Qualifications for Engineering Design” (hereinafter referred to as the “Standards”) according to the “Rules on Administration of Survey and Design of Construction Projects” and the “Provisions on Administration of Qualifications for Survey and Design of Construction Projects”, and promulgated the Standards on March 29, 2007.

The Standards describe the relevant project designing types, allotment of professional technicians and division of scales for 21 industries, and divide the qualifications into four levels: integrated qualification for engineering design, industry qualification for engineering design, professional qualification for engineering design, and special qualification for engineering design. There are three requirements for the acquirement of each kind of qualification, covering the work experience and reputations, technical conditions, and technical equipment and management level.

For enterprises with different qualifications, the Standards set out the business scopes corresponding to their qualifications. For example, an enterprise with A-level integrated qualification for engineering design may undertake the service of designs for various industries, and there is no limitation on the scale of the projects. But when undertaking such designs, it shall meet the requirements on allotment of persons as required by the designing type corresponding to the construction projects.??

Notice of Ministry of Commerce on Printing and Distributing the “Regulations on Use of the Logo of “China Time-honored Brands””

The Regulations set up strict limits on the parties who use the “China Time-honored Brands”: only the enterprises and brands which have been recognized as “China Time-honored Brands” may use such logos and words. Other enterprises and individuals are banned from using them.

The Regulations also affirm that the logo of “China Time-honored Brands”, comprising with a standard figure and the words of “China Time-honored Brands” in English and Chinese, is owned by the Ministry of Commerce. The figure may be used separately, or in combination with the words. The Ministry of Commerce makes the certificates and boards of “China Time-honored Brands”, and assigns numbers on them.

The enterprises, recognized as “China Time-honored Brands”, may use the logo of “China Time-honored Brands” in the packages, decorations, introductions, advertisement and network of the relevant products and services, but there are following restrictions: (1) the logo shall be used in a settled manner, which can be enlarged or narrowed in proportion, but the ratio and hues of the logo shall not be changed; (2) the logo shall only be used on the relevant products or services corresponding with such logo, and the scale of use shall not be enlarged without approval. In addition, if the enterprise names or the ownership of registered trademarks are changed, the right to use the logo of “China Time-honored Brands” shall also be changed accordingly, subject to archival filing prior to such changes.

?“Measures on Administration of Deducting the Remunerations paid to Interns by Enterprises before Tax”

The State Administration of Taxation promulgated the “Measures on Administration of Deducting the Remunerations paid to Interns by Enterprises before Tax” (hereinafter referred to as the “Measures”) on April 10, 2007, for the implementation of the “Notice of the Ministry of Finance and the State Administration of Taxation on the Policy of Income Tax in relation to the Remunerations paid to Interns by Enterprises”(hereinafter referred to as the “Notice”).

According to the Measures, if an enterprise pays the remuneration to the interns according to the Notice, such remunerations may be deducted in calculating income tax according to these Measures. However, the enterprise accepting interns shall have a cooperation agreement with a term more than three years concerning interns, with the schools where the students are, to specify the rights and obligations of the parties. Otherwise, the remunerations paid to the interns shall not be included in the pre-tax deductible items. If the agreement is early terminated (except such objective reasons as cancellation of enterprises or schools), the tax authorities may increase the taxable incomes, and request the enterprise to pay the taxes and the relevant late payment penalties.? ???

The remunerations of interns may include, in the form of currency, the basic wages, bones, allowance, subsidies, overtime wages, increased wages at the end of the year, and insurance premium for accidents paid by the enterprises according to the agreements. Any remuneration not in the form of currency shall not be deducted prior to the payment of tax.

In addition, any subsidies obtained by the enterprises from the relevant authorities or schools for accepting interns shall be included in the taxable incomes and be levied on enterprise income taxes.

?“Measures for Administration of the State Accredited Enterprise Technology Centers

The National Development and Reform Commission, Ministry of Science and Technology, Ministry of Finance, General Administration of Customs, and State Administration of Taxation promulgated the “Measures for Administration of the State Accredited Enterprise Technology Centers” (hereinafter referred to as the “Measures”) on April 19, 2007, which came into effect on May 20, 2007. The “Measures for Administration of the State Accredited Enterprise Technology Centers” promulgated in 2005 was annulled simultaneously.

According to the new Measures, the accreditation of the state accredited enterprise technology centers shall be organized once a year, and the expiry date for application is May 15 each year. The basic conditions to be met by enterprise applicants are provided in Article 5, which set out many requirements such as the economic strength and economic effects of the enterprises, ability to carry out research, development and trial, innovation sense of the management and the ability of the persons taking the lead of technology, and the enterprises themselves. It is essential to note that the new Measures cancel the requirement that “the annual sales amount of an enterprise shall be more than RMB 300,000,000”. The accreditation results of the state accredited enterprise technology centers shall be announced within 90 days after the National Development and Reform Commission accepts the application.

According to the new Measures, the state accredited enterprise technology centers may enjoy the following policies: (1) enjoy the relevant preferential treatments as provided in the “Interim Rules on the Exemption from the Import Tax on Items for the Science and Technology Development”. For example, before December 31, 2010 and within reasonable quantities, if importing articles for scientific and technological development which can not be made in China or whose performances can not satisfy the demand, the customs import duties, value-added taxes at the import stage and consumption taxes shall be exempted. (2) The National Development and Reform Commission, by way of its special fund on the building of self-innovation capabilities of the enterprise technology centers, and the Ministry of Science and Technology, by way of its special fund plan on science and technology for the enterprise technology centers shall provide fund support for the state-accredited enterprise technology centers, so as to guide and encourage the enterprises to increase their input in the technical innovation and intensify their self-innovation.

?“Reply of the State Administration of Taxation concerning Dealing with Income Taxes Imposed on Government Subsides to Foreign Invested Enterprises and Foreign Enterprises ”

The State Administration of Taxation made the “Reply concerning Dealing with Income Taxes Imposed on Government Subsides to Foreign Invested Enterprises and Foreign Enterprises” (hereinafter referred to as the “Reply”) to the “Request from the Administration of Taxation of Gansu Province for Instructions on whether NETZSCH (Lanzhou) Pumps Co., Ltd. shall pay Enterprise Income Tax on Subsidies obtained from the Government” on April 5, 2007.

According to the Reply, the taxation treatment on assets, whether it is monetary, gratuitously obtained from the government in various form (hereinafter referred to as government subsidies) by the organs and premises established by foreign-invested enterprises and foreign enterprises within the territory of China (hereinafter referred to as enterprises) shall be respectively conducted according to the following circumstances: (1) According to the laws, administrative regulations and the provisions of the State Council, the government subsides obtained by the enterprises shall be exempted from enterprise income tax, and such government subsides obtained by the enterprises shall be treated as investments, and the value of such government subsides shall not be calculated into the amount of taxable incomes of the enterprises; (2) if the subsidies obtained from the government belong to (a) the subsidies obtained from the government are not current-assets, owned by the enterprise for a long term, or (b) An enterprise has obtained government subsidies in the form of current assets, however, it has used or shall use such subsidies for purchase, construction or improvement of non-current assets according to the requirements for government subsidies, such subsidies shall not be calculated into the current losses and profits of the enterprises. However, the assets purchased or formed by the said government subsides shall be estimated, depreciated or amortized after the amount of government subsides has been deducted. Any subsidies not included in above scope shall be treated as current losses and profits and levied on enterprise income tax.

§ IP Cases

The Judgment of the First Instance Affirmed that Infringement was Constituted for SOHU to Publish Introductions of Restaurants from “Dazhong Dianping Website”

The People’s Court of Beijing Haidian District made a judgment of the first instance, on April, 10, 2007, in the case of Shanghai Hantao Information Consultation Co., Ltd. vs. Beijing SOHU Network Information Service Co., Ltd. (hereinafter referred to as “SOHU”), regarding infringement on copyright, which affirmed that the infringement was constituted, and the defendant should compensate the plaintiff for the losses suffered by the plaintiff.

The plaintiff alleged that it was the operator of Dazhong Dianping Website. It extracted part of the comments made by internet visitors in relation to restaurants, and incorporated them into restaurant introductions, and published them on the website. It also edited such restaurant introductions into the books called “Guide Book for Restaurants in Beijing” and “Guide Book for Restaurants in Shanghai”. As the introductions of restaurants were original, the plaintiff had the copyright of such introductions. The defendant, without prior consent, used the introductions about eleven (11) restaurants on SOHU website, and infringed the copyright of the plaintiff on such introductions.

The defendant, SOHU, defended that the introductions to the eleven (11) restaurants were not original, and it could not be protected by the Copyright Law. Even if such introductions could be protected by the Copyright Law, the copyright of the introductions should be jointly held by the plaintiff and the internet visitors who uploaded the introductions to Dazhong Dianping Website. The plaintiff was not entitled to claim for such copyright. The introductions to the eleven restaurants, used by SOHU operated by the defendant, were all originated from the comments uploaded by internet visitors, not the Dazhong Dianping website, or the books of “Guide Book for Restaurants in Beijing” and “Guide Book for Restaurants in Shanghai”. So the defendant did not agree to the claim of the plaintiff.

The court held that the words included in the brackets of introductions, published on the Dazhong Dianping website, and the books of “Guide Book for Restaurants in Beijing” and “Guide Book for Restaurants in Shanghai”, were from the comments on restaurants uploaded to Dazhong Dianping website by internet visitors. Such words were simple daily terms, not original descriptions, and they should not be protected by the Copyright Law. So the plaintiff may, without the consent by the relevant internet visitors, extract such comments and incorporate them into the introductions of restaurants. Such introductions made by the plaintiff were original and may be protected by the Copyright Law. So the plaintiff held the copyright on such introductions. The contents published on Sohu website, operated by SOHU, were completely the same as, or basically the same as the introductions, on which the plaintiff held the copyright. Therefore, the infringement was established.

The People’s Court of Beijing Haidian District made a judgment, on April 20, 2007, in the case of Mr. Bao Yingju vs. Beijing Hui Zhi Yan Glasses Chained Service Co., Ltd., regarding infringement on trademark right, and ruled that the infringement on trademark was established.

The plaintiff alleged that it applied for registration of the trademark of “Hui Yan” (means “exceptional insight”) for Category 44 (glass shops), valid from August 7, 2003 to August 6, 2013. The defendant used “Hui Zhi Yan” (also means “exceptional insight”;? the word “Zhi” in Chinese is an auxiliary word) as the trade name of Beijing Hui Zhi Yan Glasses Chained Service Co., Ltd. in inviting franchises, which confused and misled the relevant public in the sources of the services between “Hui Zhi Yan” and “Hui Yan”, and caused the misunderstanding that there were some relationship between the plaintiff and the defendant, and then harmed the right to the exclusive use of the service trademark held by the plaintiff.

The defendant defended that, “Hui Yan” was not a well-known registered service trademark, and the fame of “Hui Zhi Yan” was greater than “Hui Yan”, and no one would mistake it for “Hui Yan”. In fact, it was “Hui Yan” that caused confusion among the relevant public by using “Hui Zhi Yan”. Moreover, “Hui Zhi Yan”, as part of an enterprise name, was different from “Hui Yan”, a trademark. “Hui Zhi Yan” was a legally registered trade name, so their use was lawful.

The court held that, “Hui Zhi Yan” was similar to “Hui Yan”. It was a way of prominent use for the defendant to use the trade name as a simplified enterprise name in its business. For the argument by the defendant that it had invested much in publicity, which made “Hui Zhi Yan” more famous than “Hui Yan”, the court held that if the public was misled to consider “Hui Yan” as a trademark owned or used by the defendant, resulting from the extensive publicity or business of the defendant, the plaintiff may not be able to enjoy the relevant interest, even if the plaintiff gave the trademark “Hui Yan” a certain commercial reputation by its own efforts. This restricted the development prospect of the plaintiff and was reverse confusion. Therefore, the court held that the action of the defendant constituted infringement on the trademark.

It shall be deemed as Implied Consent that A Right Holder of A Trademark did not object to the Use of its Trademark by the Company He worked for

Shanghai Higher People’s Court made a judgment of the second instance, on March 7, 2007, in the case of Shanghai AEC Company vs. Mr. Xu Ruixin, regarding trademark infringement dispute, which denied the infringement on the trademark by the defendant.

The court of the first instance held that, though AEC Company claimed that it authorized Mr. Xu Ruixin to register the trademark of AEC, it could not provide any evidence about it. And the Notice of Accepting Application for Trademark Registration and the registration certificate showed that Mr. Xu Ruixin was the holder of the trademark “AEC”. Therefore, Mr. Xu Ruixin lawfully held the trademark. In addition, after the establishment of AEC Company in 2003, Mr. Xu Ruixin had been the General Manager of AEC Company until AEC Company removed him on March 9, 2006. During this period, AEC Company concluded thirteen (13) contracts concerning the trademark AEC. As the General Manager of the company, Mr. Xu Ruixin should have known the execution of such contracts, but he did not raise any objections. So it should be deemed as granting by Mr. Xu Ruixin the license to the Company to use the trademark of AEC. Therefore, the action of AEC Company did not constitute infringement.

AEC Company appealed that Mr. Xu Ruixin registered the trademark of AEC under the engagement of the company. The parties in this case were not in an equal position and could not reach implied contracts on license of the trademark, nor was there any possibility that Mr. Xu Ruixin granted implied license to AEC Company in relation to the use of the trademark.

The court of the second instance held that AEC Company did not provide sufficient evidence to prove that it had authorized Mr. Xu Ruixin to register the trademark in dispute. According to the Notice of Accepting Application for Trademark Registration and the registration certificate, Mr. Xu Ruixin was the lawful holder of the trademark of AEC, whose rights to exclusive use of the trademark shall be protected. However, as, during his office in AEC Company, he did not raise any objection to the use of the trademark by AEC Company, it shall be deemed as implied consent to the use of the trademark by the Company. Therefore, the action that AEC Company used the trademark when signing the relevant contracts, during the term when Mr. Xu Ruixin was holding a position at AEC Company, did not infringe the right to exclusive use of the trademark.

Registration Information of the Seller shall at least be Provided to Prove the Lawful Sources of Infringing Products

Guangzhou Intermediate People’s Court made a judgment of the first instance, on March 29, 2007, in the case of Shenhen Heruixiang Industry Development Co., Ltd. (hereinafter referred to as “Heruixiang Company”) and Mr. Huang Zili vs. Guangzhou Liyuan Automobile Accessories City Chele Automobile Articles Shop, regarding infringement on patent right, which ruled that the infringement committed by the defendant was established.

The two plaintiffs said that Mr. Huang Zili was the patent right holder of a design for a “perfume bottle (Miracle Paris)”. Mr. Huang Zili and Heruixiang Company concluded a license contract on the exclusive use of this design. Since 2006, they found that the defendant had been selling the perfume stands of “Dream Paris”, produced by Guangzhou Little Shark Automobile Articles Production Co., Ltd., which was the same as the patented design held by Mr. Huang Zili. The action of the defendant selling such patented products without authorization infringed the patent right of the plaintiff. Moreover, there was no record of a company called “Guangzhou Little Shark Automobile Articles Production Co., Ltd.” in the registration database of industrial and commercial enterprises of Guangzhou. There was no producer for the “Dream Paris Perfume Stands” sold by the defendant, so the sources of the products were not lawful, and the defendant should be liable for compensations.

The defendant defended that the suspected infringing products were purchased from Shantou Kehong Industry Co., Ltd., who issued effective and valid invoices. The defendant did not know that there was a patent right on the products, so it refused to make compensations.

The court believed that the defendant provided to the court an invoice, chopped by Shantou Kehong Industry Co., Ltd., for sales of perfume to prove the products had a lawful source. The court held that the parties did not necessarily conclude any contract for the sale and purchase of the perfume stands. However, considering that there were people selling blank invoices or even fake invoices, and considering the degree of difficulty for the defendant to provide evidence, the defendant should, at least, provide the registration information of the entity who issued the invoice, to prove that the infringing products sold by the defendant had a lawful source. In addition, the name of the products on the invoice was rather similar to the “Dream Paris Perfume Stand” sold by the defendant, but it could not be decided whether they were the same products. Therefore, the court held that the defendant did not have sufficient evidence to prove that the infringing products it sold had a lawful source. The infringement was established, and the defendant should compensate the plaintiffs for the economic losses suffered by the plaintiffs.

Application for Trademarks shall not Harm the Previous Rights of Others

The Beijing Higher People’s Court made a judgment of the second instance, on April 17, 2007, in the case of Mr. Yang Lixin vs. the Trademark Review & Hearing Board of the State Administration for Industry & Commerce, regarding an administrative dispute relating to a trademark, which maintained the Rule No. 68 made by the Trademark Review & Hearing Board that the trademark of “Hexi” with a figure applied by Mr. Yang Lixin should not be registered. Hexi Vinegar Co., Ltd. of Jishou City was a third party in the trial of the first instance.

The court of the first instance held that, before 1956, the ancestors of Mr. Yang Lixin produced vinegar by the process coming down in his family, and sold, in the name of “Yang’s Shop”, such vinegars called “Hexi Vinegar”, “Royal Vinegar” and “Chi Vinegar”, which was well-known to the local customers. In 1956, the “Yang’s Shop” became a state-private joint venture, partnering with the State-owned Hexi Supply and Marketing Vinegar Factory, who was the predecessor of Hexi Vinegar Factory of Jishou City. It was obvious that Yang Lixin was in bad faith since he set up Hexi Taifu Vinegar Factory of Jishou City in May 1997, and applied for registering the trademark in dispute. Hexi Vinegar Co., Ltd., as the assignee of the intangible assets of Hexi Vinegar Factory, had the lawful capacity to submit objections to the trademark of “Hexi” (with figure) applied by Yang Lixin. The Trademark Review & Hearing Board was right in ruling that the trademark in dispute should not be approved to be registered.

The main contention made by Mr. Yang Lixin in the appeal was that the judgment of the first instance was lacking legal bases in considering that his application for registration of the trademark was in bad faith, while ignoring the fact that trademark of “Hexi” had been used by his ancestors and was well-known to a certain extent.

The Trademark Review & Hearing Board and Hexi Vinegar Co., Ltd. submitted themselves to the judgment of the first instance.

The Beijing Higher People’s Court held that the ancestors of Mr. Yang Lixin had used “Hexi Vinegar” in producing and marketing the vinegar commodities, which was locally well-known. However, from the state-private joint venture operation in 1956 to the registration of the trade name of “Hexi Taifu Vinegar Factory” by Mr. Yang Lixin in 1997, the Yang’s had not produced or sold “Hexi Vinegar” in its name. During this time, Hexi Vinegar Factory had started to produce and sell the “Hexi Vinegar”, whose commodities were awarded the title of “Premium Products of Hunan Province” for many times, and got a great reputation. Though there was a registered trademark of the “Lion Mountain” on the logo of “Hexi Vinegar” used by Hexi Vinegar Factory, the words of “Hexi Vinegar” were in a prominent location of the logo, and the relevant public recognized the commodities from “Hexi Vinegar”. So “Hexi Vinegar”, as the name of the commodity, had the function of a trademark to recognize the commodity, and had gained a certain commercial reputation. Mr. Yang Lixin, as the local operator in the same industry, should have known that “Hexi” was a trademark used by Hexi Vinegar Factory of Jishou City and was well-known. Therefore, Mr. Yang Lixin was in bad faith to apply to register the trademark of “Hexi” with a figure. Therefore, the court held that the rulings made by the court of the first instance and the Trademark Review & Hearing Board were correct, and should be supported.